Property Funds Association calls for change in portfolio allocation

Portfolio allocation theory needs to be improved as retirees worry about a significant reduction in their capital base, according to data released by the Property Funds Association (PFA).

According to a Deloitte MySuper review from April, a typical portfolio theory consists of a total allocation to property of 11 per cent and of this allocation, 73 per cent comprises listed property exposure.

The PFA believes portfolio theory should be adjusted so that listed property forms part of the equities allocation and predominantly unlisted property investment forms the property allocation.

"Despite the noise surrounding the property sector and funds that have incurred capital losses in recent years, unlisted property and syndicates remain the strongest performing core asset class in Australia over the last decade," said PFA president Robert Olde.

"They have outperformed the Australian equities market by 2.2 per cent per annum, but with much lower volatility."

Olde said the volatility of unlisted property is closer to that experienced by bond investors and reflects the defensive nature of direct real estate investment. Unlisted property provided the same risk/reward contribution to a portfolio as Australian bonds but with higher returns, he said.

Similarly, PFA stated direct property had substantially lower volatility due to the lower level of liquidity.

"Property is seen not only as a way to preserve wealth, but to also augment it and this is particularly relevant when you consider that property investment in most cases is an inflation hedge, given the structure of leasing arrangements," Olde said.